* Fed seen announcing plans to unwind debt portfolio
* Sprint, T-Mobile shares jump after report of merger talks
* Best Buy down after disappointing adj. earnings forecast
* Indexes up: Dow 0.20 pct, S&P 0.15 pct, Nasdaq 0.15 pct (Updates to early afternoon)
By Sruthi Shankar
Sept 19 (Reuters) - U.S. stocks edged up in early afternoon trading on Tuesday, helped largely by gains in telecom stocks, but traded in a narrow range as investors stayed away from making major bets ahead of the Federal Reserve's policy meeting.
The U.S. central bank, which begins its two-day meeting on Tuesday, is widely expected to announce on Wednesday that it will begin paring its bond holdings, with reductions likely to start in the coming months.
While an interest rate increase is not expected, investors will closely watch Fed Chair Janet Yellen's views on inflation, which remains stuck below the Fed's 2-percent target rate.
"People are in wait-and-see mode. The expectations are that rates will remain unchanged and they (the Fed) will start balance sheet unwinding. But there's always a possibility of surprise. I think that's why investors are cautious," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.
"When you combine the excellent communication (from the Fed) and the small nature of the initial unwind, right now the market knows what's coming, I expect there to be no real response."
Any reduction in the Fed's balance sheet could make it harder for banks and investors to borrow certain Treasuries in the repurchase agreement market, making it more difficult and expensive to bet on or protect against rate increases.
At 12:33 p.m. ET (1633 GMT), the Dow Jones Industrial Average was up 44.65 points, or 0.2 percent, at 22,376, the S&P 500 was up 3.79 points, or 0.15 percent, at 2,507.66 and the Nasdaq Composite was up 9.73 points, or 0.15 percent, at 6,464.37.
Seven of the 11 major S&P sectors were higher, led by a 2.14 percent gain in the telecom services sector.
Shares of wireless carriers T-Mobile rose 4.4 percent and Sprint 8.6 percent, following a report that the companies were in active merger talks.
Verizon and AT&T also rose more than 2 percent, lifting the S&P higher.
Health index was the biggest laggard on the S&P, pulled lower by United Health's 2.2 percent fall.
Best Buy fell more than 8 percent after the No.1 U.S. electronics retailer forecast 2021 adjusted earnings well below Wall Street estimates. The stock was the biggest loser on the consumer discretionary index
Tesla was down more than 2.3 percent after Jefferies started coverage of the electric car maker's stock with "underperform".
Advancing issues outnumbered decliners on the NYSE by 1,395 to 1,365. On the Nasdaq, 1,401 issues rose and 1,381 fell. (Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)